For the three months ended December 31, the company earned US$3.46 billion, or 32 cents per share, on revenue of US$10.82 billion. That compares with earnings of US$1.55 billion, or 14 cents per share, on revenue of US$10.15 billion in the same quarter a year ago.
In October, Microsoft forecast revenue for the December quarter of US$10.3 billion to US$10.5 billion and per-share earnings of 28 cents a share. Analysts had been expecting a bit more in revenue, with the consensus average being US$10.554 billion, according to First Call.
"Our record revenue came from across-the-board strength in both our business and consumer segments," outgoing financial chief John Connors said in a statement. Connors also noted that the company's Home and Entertainment unit, which includes Xbox, delivered its first profitable quarter. All told, Microsoft's emerging businesses saw a US$700 million improvement over last year's losses.
For the current quarter, Microsoft said it expects revenue in the range of US$9.7 billion to US$9.8 billion, just ahead of current analyst expectations, with per-share earnings expected to be 27 cents or 28 cents.
Microsoft also hiked its expectations for the full fiscal year, which runs through June. The company now expects revenue between US$39.8 billion and US$40 billion, with per-share earnings in the range of $1.09 to $1.11. Previously, the company had been calling for revenue between US$38.9 billion and US$39.2 billion, with per-share earnings of $1.07 to $1.09.
The earnings report sent Microsoft shares modestly higher in after-hours trading, to US$26.47 on the Island ECN. The stock closed regular trading at US$26.11, up 10 cents, or less than half of 1 percent.
All of Microsoft's seven business units saw an improvement in the bottom line. In many cases, however, better results stemmed from stock-based compensation charges in the year-ago quarter. Most units saw sales rise as well. The Information Worker unit, which includes Office, was the only unit whose sales dropped, while revenue in the Microsoft Business Solutions unit was roughly flat.
The company's balance of unearned revenue--seen as a predictor of future sales--rose slightly from the prior quarter, to US$7.97 billion from US$7.78 billion.
The company's cash balance dropped significantly following the company's one-time $3-per-share payout. Microsoft ended the quarter with US$34.5 billion in cash and short-term investments, down from US$64.4 billion three months earlier.
Microsoft said that during the three-month period, the company repurchased 23.6 million shares of its stock for a total of US$655 million, a lower level than repurchases in the year-earlier period, when the company bought back 30.5 million shares for US$830 million. The company announced plans to step up the rate at which it repurchases shares, though for the past two quarters it has bought back less stock than in the comparable year-earlier periods.
As for the individual business units:
- The client unit, which includes desktop and notebook versions of Windows, saw sales rise to US$3.22 billion from US$3.05 billion. Operating income was US$2.53 billion, up from US$2.10 billion a year earlier.
- The server and tools unit saw sales jump to US$2.43 billion from US$2.15 billion, with operating income at US$913 million, compared with a loss of US$209 million in the year ago period.
- The unit that includes Office saw sales dip from a year ago, to US$2.78 billion from US$2.86 billion. However, operating income increased to US$1.203 billion from US$1.83 billion a year ago. Microsoft attributed the sales drop to the fact that the year-ago quarter benefitted from initial sales of the just-launched Office 2003 product.
- The Microsoft Business Solutions unit had sales of US$211 million, up from US$210 million. Losses were narrowed to US$29 million from US$139 million a year ago.
- MSN continued to show profits, earning US$130 million this quarter on revenue of US$588 million. A year ago MSN had a loss of US$95 million on revenue of US$546 million. The company noted a 17 percent rise in online advertising and forecast continued growth in online advertising sales and subscription revenue from MSN's premium services.
- Microsoft's mobile and embedded devices unit, which includes software for handhelds and mobile phones, posted a narrow US$4 million loss, compared with the US$110 million loss a year ago. Revenue increased to US$91 million from US$63 million a year ago.
- Buoyed by strong Xbox sales, The Home and Entertainment unit posted a US$84 million profit on revenue of US$1.41 billion. A year ago, the unit saw losses of US$397 million on sales of US$1.27 billion.
